Stanley and Danko posed the question, “Why is only such a small percentage of the population considered wealthy?”

You and I both know many households that earn six-figure incomes, but are still not wealthy. Why? Simple. Too many Americans live their life spending tomorrows money.

The authors emphasized how many households in the United States that are entirely dependent on debt.

They couldn’t survive without it. 

“They are debt-prone and are on earn-and-consume treadmills.”

These same people believe that spending money on things (shiny new objects) that give them a wealthy image end up with more happiness. Whether they realize it or not, they’re on the hedonic treadmill of life. 

Too many young people are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.”

It’s the lavish lifestyle that sells the time on TV and newspaper stories.

Remember Robin Leach’s “Lifestyles of the Rich and Famous“?

Unfortunately, you’re not going to see too many TV shows that talk about becoming a millionaire means being frugal and working hard.

As a consequence, our youth are told that buying expensive items is normal behavior for affluent people.

They are led to believe that:

• the wealthy have a high-consumption lifestyle
• hyper-spending is the main reward for becoming affluent
• if you don’t show off material possessions then you don’t have much money

Playing Great Defense

When most think about becoming wealthy, playing offense or generating a significant income is usually the first thing that comes to mind.

They assume that by focusing their energy on generating high incomes, they will automatically become affluent.

Most with a millionaire status interviewed in the book also play great defense.

Playing great defense means that they are frugal when it comes to spending for consumer goods and services.

The foundation stone of wealth accumulation is defense, and this should be anchored by budgeting and planning.

I loved this quote which is especially true for doctors: “It matters LESS how much more you make than what you do with what you already have.”

You see, most millionaires measure their success by their net worth, not their income.

Great offense + poor defense = UAW

If you want to really accumulate wealth, think about playing defense as much or more than playing offense.

Financial Independence (FI)

I first learned about FI from other bloggers than were promoting the FIRE (financial independence retire early) community. 

There seems to be too many high-income earners that are facing a bleak retirement.

Most of this is due to their high consumption lifestyles that they’ve become accustomed to. Sometimes they realize this too late in life.

How would you like to be a 68 year-old surgeon that has no savings that asks himself, “Will I ever be able to retire?”

Just because somebody is a well-educated, high-income professional, doesn’t automatically translate to FI. It takes planning and sacrificing.

Do you want to become financially independent?

Is your goal someday to become financially independent? I hope so. It’s an unbelievable feeling.

Remember, your plan should be to sacrifice high consumption today for FI tomorrow.

Every dollar you earn is first discounted by the dreaded tax man. This is how the typical millionaire thinks before making purchases.

Related article: 5 Outstanding Tax Strategies For High Income Earners

You have a choice to make.

Will you choose a lifetime of high taxes and a Beverly Hills living status (living the high life) or live in a modest home and drive a good used car?

From personal experience, living in a less costly area has enabled us to spend much less on such things as:

• property taxes
• home owner’s insurance
• furniture
• vehicles

Why?

We’re not constantly trying to keep up with the Joneses because our neighbors aren’t either. 🙂

Doctors, PAWs & UAWs

Most doctors are paid well. In fact, a physician’s average salary is $206,500 and dentists make $173,860.

On average, doctors earn more than four times the annual income of the average American household.

The book’s research found that physicians typically aren’t very good at accumulating wealth. For every one doctor in the PAW group, there were two in the UAW category.

Why do they lag so far behind on the wealth scale? One of the reasons is that they get a late start. After four years of college, four years of medical school and several years of residency, they try to play catch up.

Another reason which ties in to the one above is something that Dave Ramsey calls “Doc-itis.” I admit, I had a touch of this disease after completing my residency. It all has to do with the sacrifice and delay we put on living the good life.

Once we graduate, many of us feel that we are “entitled” to the BIG life. Society expects it, right? And they give us a long list of “expects.”

They “expect” doctors to:

• live in expensive homes
• dress in style
• drive expensive vehicles

If they live in a modest home and drive a four year old Honda Accord, they assume their practice is mediocre. Too many these days judge a book by its cover and NOT by their net worth criteria.

Getting On The Same Page

Here’s something that most people overlook when it comes to wealth building. The Millionaire Next Door cites that your spouse’s orientation and beliefs toward thrift, consumption, and investing is a significant factor in achieving a high net worth.

These couples spend their time, energy, and money on similar things.

It is very difficult for a married couple to accumulate wealth if one is a spendthrift. A household divided in its financial orientation is unlikely to accumulate significant wealth.

Want to make it worse? Try accumulating wealth when BOTH husband and wife are big spenders! Not going to happen!

Economic Outpatient Care

In the book, the authors discuss the term, economic outpatient care (EOC). It refers to economic gifts (money) parents give their adult children and grand kids.

They found that the more dollars they receive, the fewer they accumulate, while those who are given less actually accumulate more. This sounds like what the government is doing to our society today?

What this means to me is that it’s easier for these recipients to spend other people’s money (OPM) rather than their own.

EOC is widespread in America. More than 46% of the affluent give at least $15,000 worth of EOC annually to their adult children and/or grandchildren.

Some of this extra money goes towards paying for:

• medical and dental expenses
• college and graduate school education
• purchasing a new home

What’s wrong with this picture?

If you constantly give your adult kids money, how productive do you think they’d be? Many of the people portrayed in the book that received financial gifts from their parents tend to have a lower initiative and productivity.

They started to become habit forming and needed them just to keep up their current lifestyle. Receiving these gifts makes them underachievers in life.

In my opinion, giving kids money just to consume teaches nothing.

Here’s a few lessons from the good book about work:

• Proverbs 14:23 “In all toil there is profit, but mere talk tends only to poverty.”
• Proverbs 12:24 “The hand of the diligent will rule, while the slothful will be put to forced labor.”
• Proverbs 18:9 “Whoever is slack in his work is a brother to him who destroys.”

Rules For Affluent Parents and Productive Children

Here’s the author’s list of rules the affluent interviewed gave regarding how they raised their children.

As a father of two teens, I feel that teaching them about how to make and handle money is one of the most important gifts we can give them.

I’m not going to list each rule, as this is a review, but here are the ones I felt were most important:

1) Never tell children that their parents are wealthy.

Stanley and Danko noted that the adult children of UAWs tried to emulate their parents high-status/high-consumption lifestyle. On the other hand, most children of PAWs stated that they NEVER knew their parents were wealthy while growing up.

2) No matter how wealthy you are, teach your children discipline & frugality.

I still remember a handful of my friends growing up whose parents were multi-millionaires yet neither them o their kids acted like it. This stood out as an awesome trait to pass down.

3) Assure that your children won’t realize you’re affluent until after they have established a mature, discipline, & adult lifestyle and profession.

Mrs. DFD and I had a conversation about this exact rule not that long ago. I told her that in this book there was a doctor that set up a trust for his children in a way that I’d like to do as well.

His plan was to NOT distribute money to his children until they were at least 40 years old. Because in this way, his money would have little effect on their way of life. Smart guy.

4) Emphasize your children’s achievements, no matter how small, not their or your symbols of success.

Many of the people interviewed agreed that we should teach our children to achieve, not just to consume. Teaching our kids that earning to enhance spending should not be the ultimate goal. Unfortunately, that’s what most do whenever they get a raise or bonus. Instead of wisely investing the excess, most typically spend it as fast as they make it.

Summary

One of the rules that I intentionally left out from the list above can basically summarize what’s been written thus far, especially for those of us that have kids or grandchildren.

Most of the interviewees agreed that teaching kids that there are a lot of things MORE valuable than money is one of the best life lessons there is.

Examples include:

• Good health
• Longevity
• Happiness
• Family/friends
• Self-reliance
• Reputation
• Respect
• Integrity
• Honesty

All in all, even though this book was published in 1996, most of the principles taught are still relevant today.

As a matter of fact, Thomas Stanley’s daughter,  Dr. Sarah Stanley Fallaw, wrote a new book to follow her father’s original book.

She knows a thing or two about the average millionaire as she’s surveyed over 4,000 of them.